When folks want to consider "fair" valuation on an E&P...I'll give you a little exercise in determining "fair" valuation.
Take AXAS @ sub $4 a share and look at the stats versus GDP @ +$13 a share. Look at the production levels and look at the margins of the two companies as well as analyst opinions and guidance. Now GDP kind of plays a different game as they convert their production into mcfepd format instead of the normal boepd that most E&P's use. But in looking at their recent 1st qtr guidance they're showing 4,087 boepd at the midpoint of their range. So with basically a guidance on parity with AXAS conservative guidance of 4,000 boepd we have a stock with strong forward guidance with expectations of 6,000 boepd weighted heavily to oil and a pristine balance sheet whereas, GPD has a horrendous statistical balance sheet, post huge losses...yet those share holders are miffed because the stock isn't above $20.... I personally would'nt buy GDP at $4 a share...and I think AXAS is easily an $8 stock by sector standards....but this is where you get into the realm of sometimes the numbers and the facts are lost in the dust of the herd. Will the increasing coverage on AXAS get the herd attention ? Who knows...most folks don't buy the facts..they buy the euphoria. But just as I suggested you can look at GDP's stats and the PPS, I could just as easily list another 20 to 50 E&P's who are grossly overvalued. AXAS is far under what it should be per it's performance and it's forward outlook....but it's more about the herd and the herd's sentiment, on when and "IF" it can ever get into overvaluation. I don't bank on getting a run of euphoria to get valuation..but I firmly believe enough folks will see the fundamentals and at fair sector values I expect $8 a share...so I'll keep rocking and grinning. because there's plenty of headroom on AXAS.
It takes time, confidence, and at least 2 quarters of strong execution, as far as bringing in the "Black gold", to attract the kind of money to really expand Equity price. The Company has really gotten its house in order. Which was no small feat. These guys are sharp. They made "All" the right moves. Yet I would like to point out a different kind of "GDP", my friend.
When was the last time this Country experienced GDP, expansion, coupled with robust Oil growth, and rising Interest rates, which were basically coming off at, or near zero, and the cost of Cap-ex, was just a few hundred Bps?
A major Rail operator announced plans to add 5,000, state of the art cars, and 5k Workers just to handle the projected growth of the Bakken Shale. This caused a spike in rail car manufacturing stocks because similar announcements are expected by other RR Co's to handle the area of Eagle ford, and so on. Dow Transports are the most reliable indicator of GDP, which may leave some economists furiously looking to upgrade the 2nd half of 2014 at 4% clip, and 5% for early 2015.. this may not be sustainable, but such activity usually has a "Halo" effect, and this will certainly pressure the Fed.
Most people have been "programmed" that rising rates are bad for stocks and the economy. Facts and reality will dis-abuse them of this myth. When rates do rise, expect to an added sense of urgency to "Goose", borrowing, and then activity, and velocity will accelerate. AS LONG AS TAXES REMAIN TAME......That and government, is the only thing that can frack the whole thing up.
Comps with Callon Petroleum, CPE are also an appropriate gauge. CPE market cap 354 mil vs AXAS 361 Mil. Much like AXAS, CPE remade itself by divesting GOM assets to focus in the Permian basin.
CPE's PV-10 (Feb Presentation) Standardized measure = 284 mil vs AXAS 340 mil ( 2013 10K)
CPE outstanding debt $48.5 million 13% notes due 2016-currently being redeemed with a portion of a new $125 million senior secured second lien term loan vs AXAS credit facility of 33 mil.
CPE also has a small issue of 10.0% Series A Cumulative Preferred Stock vs AXAS-no preferreds
CPE Q1 mid range production guidance is 4,000 BOED vs AXAS 4050 BOED
CPE 2014 exit target is ~5800 BOED vs AXAS - ?? (expect this to be in excess of 6,000 BOED to meet mid range 2014 average of 5,250)
CPE concentrated in the Permian (30,000 net acres) vs AXAS well diversified between two super core areas EF and Bakken and additional dry powder in PRB and Permian (net acreage excluding Canada in excess of 70K).
IMHO, the market should accord AXAS an incrementally higher valuation based on PV10 comps, their balance sheet, and greater diversified acreage positions.
GDP has one big shareholder; drills for NG in old formations; has a preferred stock; and a great success record with drilling. I use to own it in 2005 when Pat Molloy showed up. He's a 'Midas Guy'; everything he touches turns to gold!